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Economy

Will Japan Inc. raise wages in push to defeat deflation?

TOKYO -- Japan may break free from decades-long deflation if sporadic economic recoveries seen in some regions spread to the rest of the country. And upcoming spring wage negotiations, in which reluctant big companies could finally opt for pay hikes, hold the key.

     In Hiroshima, a 140-year-old watch store reported record sales of luxury watches in December. And a teppanyaki restaurant in the city saw sales per customer jump about 20% at the end of last year.

     Mazda is the culprit behind the city's economic boom. The Hiroshima-based automaker fell on hard times after the global financial crisis, posting a net loss of more than 100 billion yen ($967 million) for the year ended in March 2012. The company staged a comeback with new vehicles equipped with proprietary environment technologies and also the help of a weak yen. On track to log a record consolidated net profit this fiscal year, the company increased this winter's bonuses by about 30% from a year earlier.

     Automobiles make up a fifth of the value of all manufactured goods shipped in Hiroshima Prefecture, and they are connected with a broad range of supporting industries, including autoparts, materials and car dealerships. Teikoku Databank found that the prefecture's economic index hit a record high last December, a testament to the growth cycle generated by Mazda and related businesses.

     Fuji Heavy Industries is the anchor of the local economy in Ota, Gunma Prefecture. With pay increasing at the firm behind the Subaru brand, the money is trickling down. The owner of a Japanese restaurant in the city says he has seen increased demand for corporate banquets.

     Reconstruction from the 2011 disaster is not the only factor propelling the economy in the Tohoku region in northeastern Japan. Production of parts for autos and smartphones has been brisk, sustaining the uptrend in wages that began in mid-2013. Fujisaki, a department store operator based in Sendai, said sales on its first day of business this year were up 10% on the year, with jewelry priced at between 100,000 yen and 1 million yen selling well.

     The key to whether these local economic booms can be expanded nationwide lies in the annual wage negotiations, which will kick off with a Feb. 5 meeting between the heads of Japan's most powerful business lobby and its largest labor organization. The labor unions of such large carmakers as Toyota and Honda plan to seek wage hikes. And major brokerages and financial firms, whose earnings have risen on the back of the stock market upswing, are also moving to raise pay.

     Prime Minister Shinzo Abe has repeatedly called for wage hikes, and now the Japan Business Federation, or Keidanren, which wields influence over wages at large corporations, has signaled its support. Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute, predicts that wages will rise by 2% or more for the first time in 13 years.

     Meanwhile, the service and construction sectors are already hiking wages on the back of strong construction demand triggered by Abenomics.

     A spate of public works projects had led to a personnel shortage at construction sites, sparking a steady stream of requests for architectural engineers at Yumeshin Holdings. The fee for dispatching a first-year engineer has risen more than 20% from a year ago. The monthly base pay for a rookie engineer has climbed 13% to 220,000 yen.

     In Osaka and Chiba, wages have surged to record levels as the openings of large commercial facilities have provided jobs for upward of a thousand people.

     According to the Labor Ministry, cash wages have been roughly unchanged, inching up just 0.6% on the year in November. Whether the recent wage hikes can gain momentum will depend on large corporations.

     Higher wages are necessary for achieving 2% inflation, a target set by the government and the central bank. Although many market players argue that the goal is unrealistic, the spring wage negotiations could help prove otherwise.

(Nikkei)

 

 

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